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“UNIVERSAL QUEEN” - English Court varies a recognition of Korean insolvency proceedings order in support of London arbitration

An order recognising South Korean insolvency proceedings involving a shipping company, which had the effect of staying the commencement of actions against the company, was varied so that parties who had contracted with a Korean ship operator could pursue claims against it in London arbitration1.

Background

The Claimant companies were party to a pool agreement and time charterparty for the vessel “UNIVERSAL QUEEN” with the Korean ship operator and time charterer, Pan Ocean. Both agreements were governed by English law and included clauses requiring all disputes to be referred to London arbitration. In June 2013, Pan Ocean entered into Korean rehabilitation proceedings as a result of becoming cash-flow insolvent and, subsequently, sought termination of the charterparty and redelivery of the vessel. The Claimants were of the view that Pan Ocean had committed a repudiatory breach, which they accepted and, consequently, sought damages.

The English Court, also in June 2013, issued a Recognition Order which stayed the commencement of any actions or proceedings against Pan Ocean. The Claimants sought to have this order modified, in November 2014, to allow them to bring their claims against Pan Ocean in London arbitration, while also undertaking to desist from enforcing any arbitration award or subsequent judgment against Pan Ocean’s assets without the prior agreement of the appointed Korean administrator. Pan Ocean’s arguments against this were, essentially, threefold:

Pan Ocean had not breached the pool agreement as it contained a clause which permitted termination in certain circumstances, including the insolvency of one party.

Further or alternatively, Pan Ocean stated that it had cross-claims against the Claimants that it was entitled to set-off against any damages claim. The effect of this, it said, would be that one of the Claimant’s claims would be extinguished, or the quantum of both claims would be reduced to such an extent that it would be disproportionate to incur the costs associated with having those claims heard in London arbitration.

Any disputes between the parties should, in any event, be heard by the Korean courts as part of its rehabilitation proceedings.

Decision

The Court was of the view that the clause within the pool agreement that permitted one party to terminate in certain circumstances did not apply to the rehabilitation proceedings but could not say so conclusively without hearing substantive arguments on the point. In any event, the Court considered the clause to be at odds with the anti-deprivation principle and was, therefore, void and unenforceable.

In relation to proportionality, it could not be said that the value of the claims was disproportionate to the costs of arbitration and, in any event, Pan Ocean’s cross-claims would have to be arbitrated. It was held that it would, therefore, be more efficient and practical to have all disputes heard together in arbitration.

Regarding the forum, the Court acknowledged that the parties had agreed for all claims to be referred to London arbitration and to be decided in accordance with English law. It was said that London arbitration was, therefore, the most appropriate forum. The reasoning behind this was that the claims would be better heard before English arbitrators, experienced in English law, rather than in Korean insolvency proceedings where the Korean court would have to hear expert evidence on English law. In relation to whether the Korean courts would recognise the English arbitration proceedings, there was insufficient evidence to demonstrate that the London arbitration, or its results, would be ignored. Even in the event that such evidence existed, it was said that that would not be a sufficiently good reason to interfere with the English courts’ jurisdiction. The Recognition Order was modified to allow the claims to be brought in London arbitration.

Comment

This judgment is significant in that it demonstrates the English Courts’ willingness to uphold contractual terms agreed by the parties to arbitrate their disputes, including in situations where there are foreign rehabilitation proceedings and a Recognition Order. The case also serves as useful guidance on the English Courts’ approach to cross-border insolvency issues, particularly in view of the number of insolvencies and subsequent foreign rehabilitation proceedings seen recently within the international shipping community.

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